New biomass tax incentive seen as catalyst for economic growth for Iowa

Years in the making, Iowa now has a tax incentive that could position the state to capture a significant portion of the nation’s $250 billion chemical market with “greener” replacements.

More than a decade ago, in 2004, the U.S. Department of Energy studied the potential for high-value chemicals from biomass feedstocks and identified 30 chemicals that hold the most market potential.

A renewable chemical production tax credit program, approved by both houses of the Legislature this year and signed into law in April by Gov. Terry Branstad, is seen as a catalyst to lure companies looking to manufacture bio-based chemicals to the Hawkeye State. The law creating the tax credit went into effect Friday.

Branstad called for a revenue-neutral, bio-renewable tax credit in his Condition of the State address in January, and state Rep. Mary Ann Hanusa, R-Council Bluffs, managed the legislation in the House. The bill was passed by the Senate on March 16 on a 46-3 vote and by the House, where the vote was 95-1, on March 28.

“This bill is an ag bill, an urban bill, an economic development bill, an education bill and a jobs bill,” Hanusa said of the legislation. “I say that because it promises to open new industries in Iowa, foster new research and development and grow our economy by providing new jobs.”

Although the bill had passed the Iowa House twice during the 2015 legislative session, it died in the Senate last year because of concerns over the program’s price tag. To eliminate that stumbling block this year, Debi Durham, director of the Iowa Economic Development Authority, proposed temporarily reducing incentives paid through another program, the High Quality Jobs tax credit, by $25 million.

“This legislation, the first of its kind in the nation, will help build Iowa’s renewable chemicals industry by using biomass as feedstocks for the production of building-block chemicals” – non-petroleum-based chemicals that can be used in the manufacture of pesticides, textiles, pharmaceuticals, plastics, paint and inks, Branstad said at the April bill signing. “Iowa is the nation’s premier leader in the renewable fuels industry, and we will now build on our legacy of leveraging homegrown renewable resources to produce the next generation of building-block chemicals.”

A study released in January that was commissioned by the Iowa Biotechnology Association and the Cultivation Corridor, a regional effort to bring more bioscience companies to central Iowa, found that Iowa is uniquely positioned to become a leader in the production of greener chemical replacements, a $250 billion industry that is projected to create as many as 50,000 new jobs nationally.

The study noted:

• Iowa ranks first in the nation in both corn and soybean production, the principal feedstocks for the biofuels industry.

• Iowa leads the nation in ethanol production with 43 facilities producing over 27 percent of the total U.S. ethanol production.

• Iowa ranks third in biodiesel production with 12 refineries producing over 16 percent of the total U.S. biodiesel production.

• Iowa boasts one of the most robust industrial biotechnology infrastructures available in the United States.

According to the authority, which will oversee the renewable chemical production tax credit program, many of the industrial facilities around the state currently producing food and fuel products from corn, soybeans and other renewable products also produce co-products that can be further processed into higher-value basic chemicals.

The new program aims to incentivize the production of high-value building-block chemicals based on weight – 5 cents per pound produced – with annual limits of $1 million for start-ups and $500,000 for established businesses.

The Iowa Economic Development Authority is currently developing the administrative rules and application process. Applications for the new incentive program will not be accepted before Jan. 1, 2018, and applications will be based on production in calendar 2017.

Interest in the new Iowa program was building long before Friday’s effective date.

Economic Development Authority spokesperson Tina Hoffman said that while she cannot discuss specifics, “there has been a lot of interest in the program. We’ve heard from a number of companies that have expressed interest in locating or expanding here.”

Joe Hrdlicka, executive director of the Iowa Biotechnology Association, called the program “common-sense economic development.”

“There is a lot of interest in this program outside of Iowa,” he said. “This is our opportunity to attract new players to the fold. We have over 50 bioprocessing facilities in Iowa, and the majority have byproducts that can be further processed to create building-block chemicals.”

Hrdlicka said he has been asked to speak about the Iowa incentive at a national conference in Washington, D.C., next week sponsored by the U.S. Department of Agriculture and a bioenergy conference the following week sponsored by the Department of Energy.

Locally, the Southwest Iowa Renewable Energy – SIRE – facility just south of Council Bluffs produces approximately 125 million gallons of ethanol annually by processing about 44 million bushels of corn a year – 128,000 bushels a day.

SIRE’s ethanol production process results in the production of over 356,000 tons of dried distillers grain annually, a byproduct of the ethanol production process that Hrdlicka said can be further processed into building-block chemicals.

SIRE Plant Manager Dan Wych said he is not aware of any current plans to further process the dried distillers grain produced here, “but we’re always open to opportunities.”

Wych noted that two years ago SIRE installed a system that captures carbon dioxide, a greenhouse gas, which is then sold to a neighboring Air Products Co. plant for use in dry ice and other products.

“Our board of directors has shown itself to be interested in new projects,” he said.